Corporate Opportunities in the US and in the UK: How Differences in Enforcement Explain Differences in Substantive Fiduciary Duties

Abstract

Fiduciary duties are often today held out as typical instruments of shareholder protection in the common law of both the US and the UK, which are sometimes held out as examples for a consensus model for what is considered good corporate law conducive to good capital market development. However, fiduciary duties in these two jurisdictions often operate in strikingly different ways. This chapter looks at the specific example of corporate opportunities, with which the UK and the US deal in remarkably different ways. Each of them focuses on a starting point: avoiding conflicts of interest in the UK approach versus identifying the correct owner of the opportunity in the US approach. While the US relies on an open-ended standard, the UK corporate opportunities doctrine effectively constitutes a rule. In this chapter, we suggest an explanation for why the two core jurisdictions of the common law world have developed so differently in this respect. We argue that only in the US fiduciary duties are typically enforced by the courts, whereas in the UK, corporate law enforcement is typically left to ex ante monitoring by outside directors and institutional investors. Only courts, in applying an ex post substantive assessment, are capable of implementing a complex “standard” for corporate opportunities. Institutional enforcement, as in the UK, lends itself better to a hard-and-fast rule. We suggest that this distinction is only an example of a larger distinction between the corporate laws of these two jurisdictions, and indicative of a broader difference in how corporate fiduciary duties operate.